| In the first part of this article we discussed why | | | | have had a transaction where the seller got a |
| most businesses buyers use leverage when | | | | second mortgage on a buyer's home. At the very |
| purchasing a business. We also discussed the | | | | least your attorney will file a UCC security |
| requirements of lending institutions, particularly | | | | agreement so you will have a lean on the |
| SBA loans which make up the majority of small | | | | business. |
| business loans. In part 2 we look at the benefits | | | | * Make sure you have confidence that the buyer |
| of seller financing and ways sellers can minimize | | | | has the ability and desire to be successful. |
| the chance of the loan going into default. | | | | * Make sure you do a credit check to make sure |
| Statistically, businesses that offer seller financing | | | | the buyer is credit worthy. |
| can sell for 10-40% more compared to asking all | | | | * Make sure that you finance the business over a |
| cash. The reason for this is that they are | | | | period of time that is reasonable for you as the |
| increasing the buyer pool by offering financing. It | | | | seller and will keep payments affordable for the |
| is the simple law of economics, supply and | | | | buyer. |
| demand. The more buyers looking at a business | | | | * Require quarterly financial statements to |
| (demand) the higher the ultimate purchase price | | | | regularly monitor the financial health of the |
| will be. The other advantage of seller financing to | | | | business. |
| the buyer is that it shows that the seller has | | | | * Make sure that the buyer has enough operating |
| confidence that the business can profitably | | | | capital so they can avoid a cash flow deficit when |
| continue into the future with a new buyer. As a | | | | they take over the business. Your accountant can |
| business broker in New Jersey I get many calls | | | | help you calculate the operating capital |
| from buyers that will only consider businesses | | | | requirements for a buyer. |
| with seller financing for this reason. | | | | By following these precautions you will minimize |
| As a business broker, I never recommend to my | | | | the chance of having to take back the business |
| clients that they offer seller financing to anyone. | | | | and not receive the full purchase price. Realize |
| Since they are becoming a lender they have to | | | | that in the majority of cases, the buyer's down |
| operate like a lender. They need to make sure | | | | payment represents the majority of their savings. |
| that they are minimizing the possibility of default | | | | That alone is enough motivation for most buyers |
| on the loan. Here are the following | | | | to work very hard at the continued success of |
| recommendations I give them: | | | | your business. Although many owners do not |
| * Make sure you get a reasonable down | | | | view holding a note as an option, it can be a great |
| payment. | | | | tool in maximizing the value received when selling |
| * Make sure you get a personal guarantee and | | | | a business. |
| collateral if possible. Although it is uncommon I | | | | |